Tycoon's Arrest Sends Shock Wave Through Russia

The arrest of a Russian telecoms and oil tycoon has sent shock waves through the country's business community, with some fearing a return to the dark days of a decade ago, when the Kremlin asserted its power by imprisoning the country's then-richest man and expropriating his companies.

The criminal case against 65-year-old Vladimir Yevtushenkov marks the first attack on a billionaire businessman since the arrest in 2003 of Mikhail Khodorkovsky, the former head of Yukos, which was the country's largest oil company at the time. He spent the next decade in prison on tax evasion and misappropriation charges and saw his company taken over by the state and sold in pieces.

The prosecution of Khodorkovsky had sent a clear message to Russian oligarchs: stay out of politics and your property will be safe. Russia's rich have followed that rule for nearly a decade, and now fret the unspoken promise may be void.

"It shows that now, no one is protected," said Vladimir Milov, an opposition politician and former deputy energy minister.

Market watchers are almost unanimous in saying that Yevtushenkov's house arrest is a move by the government and state-owned oil giant Rosneft to take control of his oil company, Bashneft. Rosneft is seeing his oil output falling and has been hit by Western sanctions, whereas Bashneft is enjoying a boom, posting an industry-leading 11.5 percent rise in oil production in the second quarter this year.

The Investigative Committee, Russia's top criminal investigative agency, on Tuesday charged Yevtushenkov with money laundering and placed him under house arrest. He could face up to seven years in prison if found guilty.

Yevtushenkov runs and controls Sistema, a sprawling conglomerate which includes Russia's largest mobile operator MTS, Bashneft and other assets. Bashneft, with a market capitalization of $6.7 billion, is one of a few oil companies still in private hands.

Sistema's shares lost 38 percent by late afternoon on Wednesday, wiping more than $2.5 billion from its share value in just one trading day.

Investor confidence in Russia has been battered this year by concerns over the economic consequences of Moscow's hard line in the Ukraine crisis. Since Russia's annexation of Crimea in March, the country has been hit with rounds of sanctions by the U.S. and European Union. Investors are also alarmed by the Kremlin's willingness to impose import bans that are meant as retaliation against the West but are also hurting domestic companies and households.

The charges against Yevtushenkov date back to Sistema's purchase of oil assets in the province of Bashkiria in 2009. These assets were once state-owned but changed hands before they were sold to Sistema. The prosecutors argue the seller had acquired them illegally, making Sistema's purchase illegal, too.

Yevtushenkov's billionaire peers from the Union of the Industrialists and Entrepreneurs insist his company was a bona fide buyer.

Sistema, which also has its shares listed in London, said Wednesday its purchases of the oil assets were "legal and transparent" and it pledged to protect them.

Anatoly Chubais, a former Russian deputy prime minister and chairman of a state-owned high-tech conglomerate, stood firmly on Yevtushenkov's side.

"I can't understand how he could be linked to Bashneft's privatization deals which he had absolutely nothing to do with," he told Interfax.

Chubais warned that Yevtushenkov's arrest has dealt "an extremely serious blow to the investment climate in Russia while the country's "economy is teetering on the brink of recession and stagnation."

Khodorkovsky accused Igor Sechin, a close confidante of President Vladimir Putin and CEO of state-owned oil giant Rosneft, of trying to take control of Bashneft. Sechin was widely seen as the driver behind the demise of Yukos and Khodorkovsky's imprisonment. He has denied the allegations.

"I have no doubts about this, but sure, I have no hard evidence to back it up," Khodorkovsky said in an interview with the RBK newspaper on Tuesday. "I think he is repeating the same pattern he used in the Yukos case."

Rosneft snapped up pieces of Yukos when it was dissolved and bought TNK-BP at the end of a protracted shareholder dispute at the British-Russian venture — all with Putin's public support.

Rosneft spokesman Mikhail Leontyev told state news agency RIA Novosti that Khodorkovsky's allegations are "nonsense" and insisted Rosneft was not seeking to get hold of Bashneft.

Bashneft was preparing for a secondary public share offering in London earlier this year hoping to raise about $1 billion. But the plans fell through when restrictions were placed on the sale of its shares as part of a probe into the company's privatization.

The Kremlin has often berated oligarchs for pulling money out of the country and selling shares abroad. Bashneft's plans to float in London could have been used as a pretext to launch the onslaught.

Economist Sergei Alekashenko says Yevtushenkov's arrest should be a wake-up call for his fellow tycoons who have turned a blind eye to corrupt courts and lawlessness in Russia.

"When everyone in Russia is deprived of the right to a free trial — this is politics," he said in a blog post. "Just like the country got engulfed in racketing after the Yukos case, the Yevtushenkov case will herald a wave of plundering."

The arrest of a Russian telecoms and oil tycoon has sent shock waves through the country's business community, with some fearing a return to the dark days of a decade ago, when the Kremlin asserted its power by imprisoning the country's then-richest man and expropriating...